Cash flow basics for a growing business
Profit on the income statement and money in the bank are two different things. Here is how to build a cash view you can plan against.
Why profit does not pay the bills
A business can report a healthy profit and still miss a supplier payment. The income statement records revenue when it is earned, not when the cash arrives. If you sell on credit and hold stock, the gap between the two can be wide.
The fix is a separate view of cash that looks forward, not back. It answers one question: how much money will be in the bank on each of the next twelve weeks, given what we already know.
Build the forecast from what you know
Start with the balance today. Then list the money you expect to collect, week by week, based on actual invoice dates and your normal collection pattern. Add the payments you already owe, then the costs you can predict, such as rent, salaries, and loan installments.
You do not need perfect accuracy. A forecast that is roughly right and updated weekly beats a precise one you never touch.
Use it to make decisions
Once the forecast exists, decisions get easier. You can see whether this is a good week to buy stock, whether to chase a slow customer, or whether to delay a purchase by a fortnight. The forecast turns cash from a monthly surprise into a managed number.
Written by EZEE Management Solutions. Have a question about this topic? Email info@ezee.com.np.
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